Sven-Goran Eriksson will leave his post as England head coach after the 2006 World Cup, the FA announced on Monday.
The Swede's contract ran until 2008. Eriksson held talks with the FA on Monday after a second weekend of embarrassing revelations in a Sunday newspaper.
"The FA and Sven felt it was important to clarify his future. This is for the benefit of everyone connected with English football, especially the fans," FA chief executive Brian Barwick said on the FA's website.
"There has been so much speculation surrounding this matter in recent weeks and months, it was important to resolve it now.
"This is the right outcome and I would like to thank Sven and his advisors for their tremendous co-operation.
"As I have said before, our main objective is giving Sven and the England team the best chance of achieving success at the World Cup. Sven is definitely the man to lead us in Germany."
The 57-year-old Eriksson, who became the first foreigner to coach the England national team when he was appointed in 2000, said he was happy that the situation had been resolved.
"I am happy that we have reached this agreement and can now continue our preparations for the World Cup," he said on the FA website.
"I know that I have the full support of the players and The FA and it is important to stress to everyone just how committed I am to achieving success this summer.
"I care passionately about this job and I want everyone to know that. I have always enjoyed the incredible support of the fans and I know how important they will be to us in Germany.
"This summer is the culmination of everything we have been working towards over the last five years. Let's go and win the World Cup."
REALISTIC CHANCE
Under Eriksson, England have qualified for three major tournaments, and many believe his squad have a realistic chance of winning the World Cup in Germany this year.
At the 2002 World Cup finals in South Korea and Japan, England reached the quarter-finals before losing to eventual winners Brazil.
Two years later England were beaten on penalties by hosts Portugal in the European Championship.
Eriksson has had to endure criticism on and off the pitch with a liberal sprinkling of tabloid stories about his private life.
In 2004 he hit the front pages after an affair with former FA secretary Faria Alam.
Eriksson's commitment to England was questioned when he was photographed in 2003 arriving for a meeting with billionaire Chelsea owner Roman Abramovich.
In March 2004 he was handed a two-year extension to his deal, taking him up to the 2008 European Championship.
Despite an embarrassing 1-0 defeat by Northern Ireland in a World Cup qualifier last September, England qualified as group winners thanks to a 2-1 defeat of Poland in their final match.
In November, a 3-2 friendly victory Argentina fuelled optimism about this June's World Cup.
However, further tabloid headlines in the past two weeks have once again turned the spotlight on the Swede, with many in the game calling for him to be replaced.
In a tabloid sting by the News of the World, Eriksson was quoted as telling a journalist posing as a wealthy Arab businessman that he would be prepared to dump England to take over at Premier League club Aston Villa.
A week later, the same Sunday newspaper quoted him as saying that three Premier League clubs had been involved in illegal payments in relation to transfers.
Eriksson met with FA officials on Monday to discuss his reported allegations.
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